Canada Home-Based Business Guide
the home-based businesses in Canada. The municipal zoning — the home-based business must comply with the municipal zoning by-laws (the "home occupation" permit — the City of Toronto's "home occupation" by-law, the City of Vancouver's "home-based business" license). The business license — the municipality requires the business license (the "home occupation" license — the City of Toronto: $200 per year; the City of Vancouver: $80 per year). The home office deduction — the self-employed individual can deduct the proportional share of the home expenses (the workspace-in-the-home) if the home is the "principal place of business" or the "exclusive use for the client meetings." The 'exclusive use' requirement — the workspace must be used "exclusively" for the business (the CRA requires the "exclusive use" for the self-employed home office). The proportional expense allocation — the expenses are allocated on the "square footage" basis (the office area divided by the total home area). The CCA on the home office — the capital cost allowance on the home office portion of the home (the Class 1 at the 4% declining balance). The home-based business insurance — the standard home insurance does NOT cover the home-based business (the "business activities exclusion" — the "home-based business rider" is required). The GST/HST registration — the home-based business must register for the GST/HST if the total taxable revenue exceeds the $30,000 threshold.
Municipal Zoning & Licensing
- Home occupation permit: The municipality may require the "home occupation" permit (the "home occupation" by-law — the City of Toronto, the City of Vancouver, the City of Montreal). The permit restricts the type of the business (the "home occupation" — the "low-impact" business — the consulting, the writing, the accounting, the graphic design, the online retail). The "high-impact" businesses (the manufacturing, the automotive repair, the food preparation) are NOT permitted in the home zones.
- Business license: The municipal business license is required for the home-based business (the "home occupation license" — the annual fee of $80 to $500 depending on the municipality). The license requires the "home occupation" compliance (the floor space limit, the signage restrictions, the parking restrictions, the employee restrictions).
- Homeowner association (HOA) restrictions: The condominium corporation (the "condo board") and the homeowner association (the "HOA" — the "strata corporation" in BC) may prohibit the home-based businesses (the "residential use only" by-law).
Home Office Deduction
- Principal place of business: The self-employed individual can deduct the home office expenses if the home is the "principal place of business" (the "primary location" where the business is conducted). The "principal place" test is met when the business is run from the home (the "home office" is the "main office" — no other fixed location).
- Exclusive use: The workspace must be used "exclusively for the business" — the CRA requires the dedicated room or the designated area that is NOT used for the personal purposes. The "exclusive use" requirement is enforced by the CRA — the home office that is also used as the guest bedroom does NOT qualify.
- Expense allocation: The home office expenses are allocated on the "square footage" basis (the home office area divided by the total home area). The "room count" method (the number of rooms used for the office divided by the total number of the rooms) is also acceptable (if the rooms are of the similar size).
- CCA on the home: The self-employed individual can claim the CCA on the home office portion of the home (the Class 1 — the 4% declining balance). The CCA CANNOT create or increase the business loss (the "CCA restriction" — the CCA is limited to the net business income before the CCA).
Home-Based Business Insurance
- Standard home insurance: The standard home insurance (the "homeowner's policy") does NOT cover the home-based business (the "business activities exclusion"). The business equipment (the computer, the office equipment, the inventory) is NOT covered by the standard home insurance.
- Home-based business rider: The "home-based business endorsement" (the "rider" to the home insurance) — the extension of the home insurance to cover the home-based business. The rider covers the business equipment, the business liability, and the business interruption.
- Commercial general liability (CGL): The commercial liability insurance (the "CGL" — the "general liability" for the home-based business). The CGL covers the "third-party liability" — the injury to the client visiting the home, the damage to the client's property, and the product liability.
For the home office expenses and the workspace deduction, see our Home Office Expenses Guide →. For the self-employment and the business income reporting, see our Self-Employment Guide →.